Juniors tap into US shale gas boom

Along-term commodities cycle may be the dominant force in the domestic market, but a handful of listed juniors have been trying their luck in the US, where a shale gas boom has ushered in a renaissance for energy exploration.

One such example is Oklahoma-based oil and gas explorer
Red Fork Energy
. Yesterday, the company announced it had increased its holding at the Mississippi-based oil and liquids rich gas play to more than 50,000 acres.

As is often the case when acreage under lease is acquired, the financial terms of the deal were not disclosed. Back in March, the company raised $28.5 million from institutional investors, including George Soros’s Quantum Partners and Macquarie Group’s metals and energy division, with aims to more than double its reach to 20,000 acres – a target it has easily exceeded.

A number of large-cap US energy companies, including Chesapeake Energy and SandRidge Energy, are active in the Mississippi project, which has borne comparisons to the red-hot Eagle Ford shale project in Texas.

On face value the development looks positive for the company but with some question marks surrounding the location of the acres and the consideration paid for them, the shares slipped 1.3 per cent yesterday.

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And while additional and potentially lucrative acreage sounds like good news, development is another potentially costly issue altogether, posing the prospects of another round of capital raising.

Whether the Quantum Fund has the appetite for more exposure to the stock remains to be seen. Earlier this year, Quantum reduced its holdings in two other ASX-listed resource explorers: Platinum Australia and
New Guinea Energy
. Although it is understood to have retained an economic interest in the latter through an equity swap, the selling sparked speculation the fund could be planning to withdraw from the Australian equity market altogether. The stock is up about 4 per cent since Quantum and Macquarie invested in March.

Another US-focused energy explorer that is gaining increasing attention is
Strike Energy
.

Last week, the company announced it had signed a joint venture with four local companies to develop 12,400 acres in the Eagle Ford shale gas region, where a number of global energy giants, including Royal Dutch Shell, BP and Marathon Oil, have significant acreage.

An analyst at financial services group Hartleys told clients the fact that Strike and its management team have been active in the US for more than 25 years reassured him. He reckoned the stock was cheap, both fundamentally and to the broader market, and raised his price target to 35¢, about 41 per cent above current levels. Over the past 12 months the stock has fallen about 12 per cent.